Will Private Long-Term Care Insurance Supplement the CLASS Act?

Apr 22, 2010

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The Community Living Assistance Service and Supports (CLASS) Act—the new national long-term care insurance program included in the just-passed health bill—begins to change the way we pay for personal assistance for the frail elderly and adults with disabilities.

CLASS takes a step towards moving long-term care financing from the welfare-like Medicaid program to an insurance-based system. But CLASS alone won’t get the nation there. Private insurance, currently a niche product that covers only about seven million Americans, will have to play an important role as well.

A key question remains: Will private coverage fill the gaps left by CLASS? Top industry executives are deeply divided over how to respond to the new law. Some are anxious to design products that would supplement CLASS insurance, much like Medigap insurance currently enhances basic Medicare. But others see little benefit in selling such products, and suggest they may try to compete with CLASS. This could doom the new government program. And it could leave the industry stuck with the same limited market it has today.

While many details of CLASS insurance won’t be worked out for at least two years, daily benefits will be relatively modest—probably about $50 or $75. That’s very valuable for the many elderly and disabled who live at home. But for those worried about having to move to a nursing home, which costs an average of more than $200 a day, CLASS insurance will fall far short of their needs.

That’s where private insurance fits in. Today, buyers of commercial policies typically purchase a daily benefit of more than $100. That suggests many consumers may want to top off the government’s modest daily benefit with private coverage. This, in fact, is what has happened in France. There, government benefits are very modest for middle- and upper-income individuals. So about 25 percent of those 60 and older have purchased extra private coverage—far more than the seven percent who currently own long-term care insurance in the U.S.

But CLASS coverage may not be easy for private companies to complement. For instance, while the daily benefit is modest, CLASS coverage is available for life. Private companies effectively dropped lifetime benefits years ago, and are unlikely to return to them.

Private companies also worry about how people would qualify for benefits. Under CLASS, it takes only the approval of a patient’s own doctor, who is likely to approve most claims. And private companies fear it will be impossible to deny payments for somebody who is already receiving CLASS benefits. As a result, they may be reluctant to sell policies to complement government policies.

But the biggest industry worry is price. It will be a few years before anyone knows how much CLASS premiums will be, but they may very likely exceed an average of $100 a month (younger people will pay lower premiums and older people will pay more). A new study by the SCAN Foundation and the consulting firm Avalere Health figures that a CLASS-like policy will cost the average buyer about $115 monthly. (SCAN funding supports some KHN coverage of aging.)

Insurers worry that once consumers buy the government plan, they’ll have little money left to pay for a supplemental private policy. That was a big reason why much of the industry opposed CLASS in the first place.

Now, some companies think those potentially high CLASS premiums may give them an opening to compete with government insurance. Here’s why: Private carriers can keep their premiums relatively low by refusing to sell to people with pre-existing health issues. But CLASS will be available to everyone who holds at least a part-time job and thus will cover many high-risk buyers. That threatens to drive up CLASS premiums which, in turn, may push more buyers to cheaper private insurance. By cherry-picking the healthiest buyers, private companies could kill CLASS.

Why wouldn’t they? Because CLASS offers one huge potential benefit to private companies: It opens the door to a large government-funded marketing campaign that promotes the need for long-term care insurance. The industry has never been able to make that case on its own but, with federal promotional dollars, long-term care insurance could become a more widespread product, and that would be good for everyone.

So maybe there is a deal to be struck: As long as private companies agree to sell CLASS supplemental policies, government agrees to promote the need for long-term care insurance, whether government or private. Now that would be a public/private partnership worth watching.

Howard Gleckman is a resident fellow at the Urban Institute, author of "Caring For Our Parents" and a frequent writer and speaker on long-term care issues.